Friday, 31 October 2008

IP auction company Ocean Tomo has sent a circular to interested parties, to calm their nerves over the US Federal Court's recent en banc decision in re Bilski(noted here on Patently-O). According to Ocean Tomo this decision

"... is unlikely to substantially change the scope of subject matter eligible for so-called business method patents or to alter the value of business method portfolios. The Court, relying on ... Supreme Court precedent, articulated a “machine or transformation test” for patentability. Under this test “an applicant may show that a process claim satisfies §101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article.” However, because the claim at issue in Bilski was admitted to be “not limited to operation on a computer,” or to carrying out the process by “any specific machine or apparatus,” the Court expressly declined to consider the contours of the machine implementation alternative. “[I]ssues specific to the machine implementation part of the test are not before us today. We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.” (Emphasis added).

The ... “transformation” test is broad. For example, ... a claim direct to the “transformation” of the depiction of a physical object on a visual display meets that test. ... the Court overruled the “useful, concrete and tangible result” test established in State Street, holding that it was “insufficient to determine whether a claim is patentable subject matter under §101.” But while this test is no longer the law, the new test will likely not alter the ultimate answer to the question as applied to particular business methods.

“Business method patents” commonly claim implementation by computer. Accordingly, the Court’s refusal to consider “whether or when recitation of a computer” is sufficient to render a process claim patentable means that the practical impact of Bilski should be limited. Absent development of further case law which squarely addresses this point, Bilski does not appear to materially change the business method patent landscape, or alter valuations of these patents".

There may be an element of wishful thinking or self-interest here but, to me at least, OT's position seems about right. Any comments?

Thursday, 30 October 2008

I have learned from Spiros V. Bazinas, Senior Legal Officer in the International Trade Law Division of the UNCITRAL secretariat, that an expert group meeting is to be held on 11 and 12 December 2008 to discuss a revised draft of the Annex on security interests in intellectual property rights (for earlier posts on this controversial and technically complex topic see here, here, here, here and here). Discussions at the expert group meeting will be based on a draft working paper which will be sent to you at least a week before the meeting. Spiros has furnished the first draft of the Annex and the report of the session during which this draft was discussed. There are three documents in all:

* Annex to the UNCITRAL Legislative Guide on Secured Transactions dealing with security rights in intellectual property (Part 1) (32 pages, covering the Introduction; Scope of application and party autonomy; Creation of a security right in intellectual property)

* Annex to the UNCITRAL Legislative Guide on Secured Transactions dealing with security rights in intellectual property (Part 2) (33 pages, covering Effectiveness of a security right in intellectual property against third parties; The registry system; Rights and obligations of the parties to a security agreement relating to intellectual property; Rights and obligations of third-party obligors in intellectual property financing transactions; Enforcement of a security right in intellectual property; Law applicable to a security right in intellectual property; The impact of insolvency on a security right in intellectual property);

* Report of Working Group VI (Security Interests) on the work of its fourteenth session (Vienna, 20-24 October 2008).

Any reader who wishes to attend the December session should email Spiros or phone him in Vienna on +43-1-26060 4072, so that his request can be considered. More importantly, if any reader would like to study the documents listed above in order to make any constructive and informed comments upon them, they can be obtained directly from Spiros or by emailing me here.

"Exactly what is the echo chamber? It’s the first 16% on the left-hand side of the bell curve of ‘influence and adoption’ in technology marketing, ... the first 2.5% being 'innovators,’ and the next 13.5% being ‘early adopters.’ Traditionally, the term echo chamber describes a group of media outlets that tend to parrot each other's reports. In the online world, where much early marketing is done, the expression has expanded to refer to blogs that write about the views of other blogs, echoing the same information back and forth. It is this process -- resulting in highly viral marketing ....

“If you dissect the art and science of technology marketing using a car as a simple metaphor, your product serves as the chassis, your cash as the fuel, Social Media, Interactive/Web, Sales, SEO, and PR as the accelerator, marketing strategy and execution as the gears, RPMs as a market indicator for listening and responding, the speedometer to convey inertia, and you … sitting in the driver’s seat, steering and controlling the entire operation,” says Solis. “Marketing to the echo chamber ... is how you get that car rolling, starting everything in first gear.” Innovators and early adopters ... “are global citizens and do not solely reside in Silicon Valley.

Remember: reporters, bloggers and online tastemakers (aka trendsetters) who spotlight innovation can send tens of thousands of [prospects] to you almost instantly. When done right, the echo chamber can generate real world interest and support”.

This piece seems to me to highlight a major difference in attitude between US and European innovators. The former are both more adept at using the media and more inclined to respond to its use by others, while the latter are plainly less effective at setting up waves of echoed information and somewhere between cautious and downright sceptical in their responses.

Right: in Europe, Echo is associated by many with the tragic tale of Narcissus in Greek mythology

Perhaps this is one explanation of US dominance in so many areas of technology marketing and exploitation.

Tuesday, 28 October 2008

"... Pat Sullivan posted a great comment on the (ongoing) myth clung to by many in the Intellectual Asset and Intellectual Property fields - that you can calculate the value of a publicly traded firm's intangible assets by simply subtracting the value of the tangible assets from the current market capitalisation.

This is the line of thinking that generated the often quoted figure that 70% or more of a companies assets are intangibles".

Comments Duncan:

"I've always qualified that by saying here 'intangibles' must include a fudge factor for market perception - which overules everything in the publicly traded stocks. As Pat points out, the current economic crisis and the large market cap losses on stock markets underscore the proposition that the difference in value is not simply attributable to intangible assets".

The truth is that myth is so widely held that it will take generations to eradicate. Like all enduring myths, it is simple to understand, has a superficially comprehensible logic and provides a basis for decision-making without the need to engage in clear-headed thinking.

Monday, 27 October 2008

The Journal of Competition Law and Economics (JCLE), published three times a year by Oxford University Press, carries occasional articles that are of great interest to aficionados of intellectual property. This issue features an article by Harvard Professor Einer Elhauge, "Do patent holdup and royalty stacking lead to systematically excessive royalties?". According to the abstract:

"Some recent literature has concluded that patent remedies result in systematically excessive royalties because of holdup and stacking problems. This article shows that this literature is mistaken. The royalty rates predicted by the holdup models are often (plausibly most of the time) below the true optimal rate. Further, those predicted royalty rates are overstated because of incorrect assumptions about constant demand, one-shot bargaining, and informational symmetry. Although this literature concludes that overcompensation problems are exacerbated by doctrines measuring damages using past negotiated royalties, in fact such doctrines exacerbate undercompensation problems. Undercompensation problems are further increased to the extent that juries cannot measure damages with perfect accuracy, a problem that persists even if damages are just as likely to be overestimated as underestimated. Nor do the royalty rates predicted by the holdup model apply if there is competition in the downstream product market or upstream market for inventions. Royalty stacking does not lead to royalties that exceed the optimal rate, contrary to this literature, but in fact tends to produce royalties that are at or below the optimal rate".

The article is not an easy read for lawyers on account of the algebra, but the conclusions are clear enough -- and in many respects extremely encouraging.

"Economic conditions have deteriorated significantly since the start of the credit crisis in August 2007. Financial markets continue to be stressed and many commodities have been subject to high price volatility. These conditions are having a significant effect on a wide range of businesses with many reporting reduced sales volumes and reduced margins.

These reductions mean that for many businesses the assumptions used to estimate the value of goodwill will need to be revised. The purpose of this review is to highlight areas of reporting of goodwill that will need to be enhanced as companies cope with the current environment.

In corporate reporting terms, the consequence of these changes in economic conditions may be an immediate need to write down the value of goodwill. For others there may be a need for additional disclosures to explain that the value of goodwill has decreased closing the gap on its book value, and that the likelihood of impairment losses in future has increased".

The FRC's review team has examined the December 2007 annual reports of 32 UK entities within the top 350 UK listed companies. Companies were selected if they had reported significant amounts of goodwill in their annual financial statements. The review does not address specific IP rights, but does examine the different methodologies employed in financial reporting of goodwill impairment.

Friday, 24 October 2008

A Pillsbury Client Alert for 15 October ("Client Alert—Bundled or Embedded Applicational Software Is Not Subject to Personal Property Taxation", by Richard E. Nielsen) records that California’s Fourth District Court of Appeal has held that application software is not subject to property taxation even if it comes “bundled” with computer hardware. This decision reverses the position taken by the trial court and Orange County Assessment Appeals Board.

This ruling turned on the legal status of the Pyxis MedStation 2000 system, which Cardinal Health 301 leased to hospitals. The system is a series of stand-up medicine storage cabinets (MedStations), each with a built-in computer that serves as a medicine tracking system and is programmed with patient and medication information. The software was provided together with each MedStation as a "bundle" rather than being separately priced.

Thursday, 23 October 2008

A report in the Financial Times today states that valuations for media publisher Reed Business Information have fallen substantially and now threaten to derail a sale by Reed Elsevier. Apparently third-round bidders are considering offers below £1bn, far lower than the initial valuation of about £1.25bn. RBI's main assets are its publications, in which the company owns the goodwill in its titles as well as a quantity of material that is protected by copyright and database right. Leading titles include New Scientist, Farmers Weekly, Kellys Industrial Directories, Kompass, Travel Weekly, Totaljobs and Electronics Weekly: most titles exist in both paper and electronic formats and many carry a large volume of job-related and other advertising.

IP financing often relies upon steady and predictable cashflows derived from the IP assets. Efficient funding structures have been established which use hedging to enable maximum leverage. These structures rely on matching receipts and payments in what are often passive borrowing entities. The credit crunch is having an effect on the market in a way which may even impact existing loans.

The Loan Market Association has published a statement about the number of queries it is receiving from members expressing concerns about their funding costs. Lenders are concerned that the funding costs which are passed to borrowers do not adequately reflect the actual cost of funding some of their loans. This is because funding costs in loan agreements are now generally set by reference to LIBOR (determined by the British Bankers Association) but the lack of liquidity in the market means that there are variations in the real cost of funding available to lenders.

The Loan Market Association form of documents which are widely used in IP financing structures include a clause intended to ensure that a lender's cost of funds are met by the borrower. This clause, known as the market disruption clause, applies when the lender has a cost of funding which is higher than the LIBOR applying to the loan under the loan agreement. The lender may elect to use this clause to charge interest by reference to its cost of funding rather than LIBOR.

If a lender elects to exercise its rights under the market disruption clause, the interest rate will reflect the lender's cost of funding rather than LIBOR and, in practice, will be increased.Many borrowers have hedged all or part of their loans and have therefore not been exposed to changes in LIBOR during the loan term. Particularly where catalogues of IP rights are financed as a whole by a loan on completion this is likely to be the case. If the market disruption clause is used by a lender, however, the borrower's hedging will no longer provide matched funding with the loan agreement. Under the loan agreement the borrower has the obligation to pay a variable rate; under the hedging documents the borrower has the right to receive a variable rate. In practice, these amounts match giving the economic effect of a fixed rate loan.

However, most hedging documents set the variable rate receivable by the borrower by reference to LIBOR. If the variable rate payable by the borrower in the loan agreement is calculated by reference to LIBOR the borrower will be effectively hedged. If the variable rate payable by the borrower in the loan agreement is calculated by reference to the lender's cost of funds (because of the operation of the market disruption clause) the borrower will not be effectively hedged.

Borrowers should be ready to understand the implications for them if a market disruption clause is used by a lender. Consider the additional cost of borrowing; the effect on testing of interest cover tests (i.e. comparing interest costs to proceeds of the underlying IP assets) and other lender protections.

Monday, 20 October 2008

Intellectual Property Watch previews this week's meeting of IP and financial stakeholders, representatives from developing and developed countries and nongovernmental organisations in Vienna under the aegis of the United Nations Commission on International Trade Law (UNCITRAL). This meeting is intended to finalise a global guide on how to use IP as collateral in commerce. At the core of the discussions is the work of the UNCITRAL Working Group VI (Security Interests) on an intellectual property annex to the UNCITRAL Legislative Guide on Secured Transactions. Issues that remain unresolved include

"the scope of the rights of a licensor when it comes to intellectual property; how specific property descriptions should be in registries; what happens to the rights of both the licensee and licensor when one or the other cannot pay their debts; and which country’s laws should apply in transactions where intellectual property is involved".IP Watch also reports that the International Institute for the Unification of Private Law (UNIDROIT) meets in Rome next month to put the finishing touches on a model leasing law. Outstanding issues include that of whether software should be included as an “asset” in proposed model:

"There is concern among some in the IP community that if software is included, or even implied, to be an asset in a leasing law geared toward tangible goods, it could pull other forms of intellectual property that are intangible into a world where they should not be. For example, movies these days look a lot like software, with many DVDs offering extended viewing capabilities through the latest technology".

Saturday, 18 October 2008

If anyone needs to be reminded of the current parlous state of the current economic situation, go no further than an item that appeared on Bloomberg online on 15 October 15. The topic of the article--the drying-up of sponsors for NASCAR in the U.S. For those of you who are not American, or are not steeped in American culture, NASCAR is short for the National Association for Stock Car Auto Racing. It is reported to be the no. 2 sport on U.S. television, trailing only U.S. football (that distinctive version of gladiator content without the four-legged lions). That makes it larger than either baseball or basketball as a preferred couch-potato past time.

NASCAR is particularly popular in the U.S. South and Midwest, but judging from its television ratings, either it manages to capture an enormous viewing public from those regions, or its passive fandom extends beyond these regions. Whatever the reason, the broadcasting of NASCAR competitions has been frequent and extensive fare of U.S. television for a long time.

Spot the NASCAR Sponsor

The article reports as follows:

"General Motors Corp., Chrysler Corp., Sears Holdings Corp. and Chevron Corp. will cut or drop sponsorships next season. Dario Franchitti, the 2007 Indianapolis 500 winner was forced out of the stock-car series by a lack of sponsors.

Teams with family names revered in stock-car racing like Petty, Waltrip and Earnhardt may enter 2009 with unfunded cars. The circuit might even have trouble filling 43-car fields.

``There's maybe 26 teams that have sponsorship for next year, and five or six that have partial,'' said Michael Waltrip, an owner and driver who shored up his finances by selling a stake to Fortress Investment Group LLC founder Robert Kauffman a year ago."

How ironic all of this is. Icon after icon of traditional corporate America is finding itself mired in heart-wrenching economic difficulties, where the cost of sponsorship outweighs the perceived benefits of wide-spread television exposure (or when any cost is simply too much in a struggle for company survival). Compare that with the purchase of English football clubs by various foreign groups, most notably from the cash-flush Middle East.

Or perhaps event sponsorship is not that great a marketing and branding investment. Eastman Kodak, virtually synonymous with the Olympics, announced that will no longer sponsor future Olympics. Another omen of US corporate distress or a changed perception of the efficacy of event sponsorship--or maybe a bit of both?

Friday, 17 October 2008

In my capacity as editor of the Journal of Intellectual Property Law and PracticeI've received an article for publication under the title "Pledging of patents and trade marks: Polish perspective on a comparative background". Inclusive of footnotes, it's around 8,000 words in length. The journal is peer-reviewed and thus has a problem -- none of the usual peer reviewers would seem to be well-matched with this subject-matter. If any reader of this blog considers himself suitably qualified to pass comment on this piece, can he or she please email me here and let me know?

"When a patent has been infringed, there's usually a price to pay, whether it's the result of a trial verdict or a negotiated settlement. Even when compensation for patent infringement is a certainty, determining the right amount is a complex matter involving the interplay of many legal and financial variables.

Patent Infringement: Compensation and Damages is a complete, concise and detailed guide. Beginning with the assumption that a patent has been infringed, it explains the seven steps of determining patent infringement damages. In each, it shows you the method used, the possible variations, the unique patent law doctrines that may apply and the strategies to consider. It also examines how awards of damages are treated under accounting rules, helping you seek terms that will be most advantageous to your client from an accounting standpoint.

From estimating lost profits to introducing the testimony of expert witnesses, Patent Infringement: Compensation and Damages equips you with legal and practical insights that will keep you one step ahead of opposing counsel. Don't try or settle another case without it".

I'm ashamed to say that I've never actually encountered this book. The author, Bryan W. Butler, has an impressive CV but one that appears to stack up on the US side of the Atlantic rather than the Eurasian side. Have any readers of this blog got any practical experience of it? At 256 euro I reckon that it's going to be a specialist read rather than a competitor for Harry Potter.

Wednesday, 15 October 2008

Nearly a year after the announcement of the Open Handset Alliance, a consortium brought together by Google to advance open source standards for mobile devices, and, in particular, the adoption of the Android software platform, the first mobile handset using the platform has been launched by T-Mobile. Named the "G1" and made by HTC, a prominent Taiwanese manufacturer, the H1 product puts into motion Google's bold attempt to reform the mobile handset market.

Android then ....

The Open Handset Alliance is a consortium of over 30 hardware, software and telecon companies devoted to promoting the open source platform for media devices. The initiative took dead aim at the reliance of proprietary software programs that heretofore controlled the platform for handsets.

The launch of the G1 has been likened to the launch of the Apple iPhone, but the business interests of Apple and Google appear to be quite different. Apple has remade itself into a premier gadget company (I don't go anywhere without loading up at least 10 podcasts on my iPod). As such, Apple will be challenged to continue to come up with new products to maintain its position in the hi-tech marketplace.

Google, by contrast, receives no direct benefit from the sale of the mobile gadgets using the Android program. The common wisdom has been that Google's interest in the Android project is to increase the use of hand-held devices. And why? For the simple reason that Google apparently views the long-term potential for generating ad revenues and the like through the use of Google services on mobile devices to be greater than that of the PC market. If so, for a start, presumably it is Google's hope that other manufacturers and other cell phone operators will join the Android bandwagon.

Android now ...

Some criticism has been leveled at the extent to which the Android platform is truly open. In particular, complaints have been heard that the so-called Software Development Kit for Android applications is not fully open and in fact allows Google some control over the platform. Another criticism heard is that there are certain limitations and restrictions with respect to the use of the Java standard. For someone who last programmed in graduate school using BASIC (that was before Ronald Reagan was elected US President), I am not well-placed to opine on the validity of these claims. That said, they remind me of certain charges leveled against Microsoft regarding the development of applications for its operating software.

More interesting, perhaps, is the extent to which Google intends to enter the mobile handset market itself. There are reports that Google has files for several patents in the mobile telephony area. Further, as I recall, Google expressed an interest in obtaining several access or other rights to broadcasting bandwidth. If so, it will be interesting to see how the broad coalition of companies that have come together in the consortium to promote the open source platform will respond, in the event that Google is viewed as attempting to encroach head-on into their commercial turf.

One thing is for certain. We are viewing only the opening act of the Android saga.

Monday, 13 October 2008

In Les Laboratoires Servier and Servier Laboratories Ltd v Apotex Inc, Apotex Pharmachem Inc, Apotex Europe Ltd and Apotex UK Ltd [2008] EWHC 2347 (Ch) (full text here, IPKat comment here) there is an interesting example of a judge's calculations, following an inquiry into damages, as to how much a pharmaceutical product patent owner must pay a competitor where an interim injunction was granted subject to a cross-undertaking on the part of the patent owner to compensate the alleged infringer in the event that the infringement action failed at trial. After summarising the basic principles he applies them to the market for the patented perindopril, which Servier sold under the Coversyl trade mark and which Apotex had been restrained from selling in generic form (the patent was subsequently held invalid):

"13. First, the "at risk" period. Where a drug patent has been registered but its validity is under challenge any company which brings onto the market a competing generic drug does so "at risk". The risk is enormous. The "protected" branded product is generally sold not simply at a "premium" price but at a hugely profitable price. Coversyl was on the market at about £11 per unit, whereas the "floor" price for the generic product (which is obviously still profitable for those who manufacture and sell it) is currently £1.50 per unit. The whole point of the generic product is to provide a cheaper alternative. A generic pharmaceutical company which launches its generic product in the "at risk" period in order to make a margin of x% on each unit sale may (if the patent is upheld and its product found to be infringing) therefore ultimately find that it is liable to pay damages in respect of every unit it sold at 2x% or 5x% or 7x% or more. Thus if a unit of generic perindopril sells for £1.50 and yields Apotex 50 pence profit, but Coversyl sells for £11 per unit, in seeking to make its profit of 50p per unit Apotex is having to run the risk of having to pay Servier damages of £10 per unit. Entering a market "at risk" thus requires (a) a high degree of confidence in the accuracy of the "judgment call" on the validity of the patent, (b) a company capitalised at a sufficient level to secure that any misjudgement on that validity question can be survived and will not lead to the destruction of the company (which may have a range of other profitable generic products not "at risk"); and (c) experience both of the market into which the competing products are being sold and the strengths and weaknesses of the brand leader with whom the fight will have to be conducted or a deal struck.

14. The second feature is the market dynamic. The market ultimately moves from one absolute state (the monopoly of the patent holder) to another (an entirely open market in an unprotected product). But the move from one such state to another is not a smooth transition properly represented by a straight line or a simple curve. There are transitional stages which themselves are characterised by periods of rapid price adjustment ("transition periods") interspersed with periods of relative price stability ("plateau periods"). The transition periods represent the market response to an actual or rumoured new entrant (whose only ability to gain market share from existing participants will be through price advantage, but who will have no interest in driving prices immediately to rock bottom whilst there remains some advantage in sharing in the profit margins established by the earlier and fewer participants). The reason for the plateau period is that if the number of participants in the market is relatively stable, then gradually market shares and unit prices emerge with which each participant is comfortable, and which yield a satisfactory return. The move from monopoly to open market will take three or four years. The number and individual length of the intervening "plateau periods" will depend on the number and timing of new entrants. The steepness of the price fall in the transition periods will depend on the degree of aggression of the new entrant and the extent to which there is scope for cutting prices to obtain market share".

The judge then interrelated these two features, added some figures, did a bit of conjecture and came up with an award of £17.5 million. This will have disappointed Apotex, which had asked for £27 million.

The cost of litigating patents is an issue that rarely fades from the IP owner's consciousness for long, and it has been pointed on many occasions that a judicial dispute resolution mechanism that is too expensive for users of the patent system can have the effect of rendering that system functionally useless. In the article below, English IP practitioner Chris Ryan (right) outlines his thoughts on the cost of patent litigation and cost-capping. If you'd like to comment on what he has said, you can email him directly here or post a comment below. Chris writes:

"In the October issue of the CIPA Journal I have suggested that some of the criticism of the cost of IP litigation in the UK courts could be avoided if the Patents County Court adopted procedures that were much simpler than those applied in the High Court. The little-used streamline procedure should become the norm and the suitability of a case for determination by that method should be the determining factor as to which court it should be allocated to. I suggested that the combination of streamlined procedure and a cost capping order (again to be regarded as the norm) could create a distinct regime; one that might result in the justice dispensed by the court being a little less dependable, but that would certainly provide a significantly cheaper alternative to the High Court. I was encouraged to include costs capping in my suggestion by the publication of the new edition of the Patents Court and Patents County Court Guidehere, which I noticed mentioned costs-capping as an available case management technique.

Now the Civil Procedure Rule Committee has published proposals here for clarifying uncertainty about the legitimacy and appropriate use of costs capping orders in all types of litigation. They are open for consultation until 24 October. However, the Committee suggests (in proposed amendments to CPR 44.18) that the only criteria to be applied should be ones arising from the nature of the particular case under consideration (interests of justice, financial state of the parties, normal case management procedures ineffective etc), not the nature of the forum in which it is to be determined. It seems to me that the new rules would undermine my proposal because the applicable criteria will have to be (expensively) assessed in each case. I would like to see them supplemented by a rule that says that the other criteria may, in effect, be “trumped” by the fact that the case has been brought in, or transferred to, a special court originally created for the express purpose of providing a low cost alternative to the High Court. I wonder if others agree:

(a) that a distinct, and distinctly cheaper regime in the PCC makes sense; and(b) that this can be achieve by the universal application of the existing rules on streamlining and costs capping.

And if anyone is with me this far would they like to contribute a suggested form of words for a rule which would have that effect?"

Few readers will disagree that the economic crisis that has hit the world's major financial districts recently has made for riveting, if not concerning, viewing. My question to readers is what effect this will have on the world of IP?

Most pundits may predict a decrease in expenditure on IP filings and tighter budget control? Is it going to be time for outsourcing the IP management function as pressure mounts to reduce headcount in inhouse IP departments. Will law firms profit from that trend and, if so, which ones - will it by XYZ partners down the road or XYZ partners located in an IP management outsourcing destinations like India, New Zealand, the Philippines or South Africa? On the other hand we may see an increased focus on licensing and innovation to generate additional revenue streams with a possible increase IP filings....or is licensing and possible diversification going to be seen risky, with companies preferring to focus on core strengths and core markets? No doubt audit clauses in licence agreements will be invoked. Are we going to see an increase in litigation as companies try to extricate themselves from optimistic agreements agreed in the good times or because the competition to increase bottom line profits has just got tighter?

Friday, 10 October 2008

Needletime refers to a performer’s right to receive a royalty for the broadcast, to the public, of a sound recording embodying a performer’s performance. With the introduction of the Performer’s Protection Act, the amendment of the Copyright Act and the promulgation of the Regulations on the Establishment of Collecting Societies in the Music Industry, performers are now entitled to a royalty for their performance embodied in a sound recording. These royalties may be collected by the performer and/or copyright owner or, alternatively, on behalf of the copyright owner and performer(s) by a “collection society” who administers their rights. The latest development in this law is the recent accreditation of SAMRO (South African Music Rights Organisation) as a collection society for needletime rights royalties. Collecting societies collect royalties from broadcasters and distribute the monies to the performers and copyright owners as per an agreement between the parties. Previously, the SA Copyright Act protected only copyright owners (usually the recording company) and royalties claimed were paid to the copyright owner of the sound recording and not the performer.

Does anyone know what the applicable royalty rates are for needletime rights? Is it possible to benchmark?

Thursday, 9 October 2008

BrandRepublic reports that News Corp has taken total control of mobile media company Jamba! (a.k.a. Jamster) by buying internet outfit VeriSign's 49% stake for about US$200m (£115m). News Corp previously acquired a controlling 51% stake in Jamba! from VeriSign back in 2007, when it paid a reported $188m (£108m).

Jamba! creates electronic media content such as wallpaper, ringtones and games for mobile phones, as well as short, made-for-mobile episodes of certain Fox television shows.

What is remarkable is the very high price that can be commanded for a business that licenses some of the most ephemeral and transient species of intellectual property on the market.

Wednesday, 8 October 2008

I have recently been browsing the FreePatentsOnline website following receipt of a press release concerning the launch of FPO's "Patent Plaque Program". The gist of this programme is that

"inventors and/or companies can create a Patent Plaque™ with a mouseclick, to promote their Intellectual Property on blogs, websites, personal pages on social network sites, corporate directories, etc".

This programme is apparently sponsored by the recently released (in the US, at any rate) Universal movie Flash of Genius, which tells the tale of an inventor whose fight to receive recognition for his ingenuity would come at a heavy price:

"Determined engineer Robert Kearns (played by Greg Kinnear, right) refused to be silenced as he took on the auto industry in a battle that nobody thought he could win".

My curiosity concerning FPO has now been stimulated and I wonder whether any readers of this blog can tell me anything about it. The notion of securing sponsorship funding from a copyright-driven movie, agreeing to plug its trade mark-protected name in order to facilitate the promotion of patented inventions has a sort of equilateral symmetry about it.

Tuesday, 7 October 2008

The business format franchise is a very special form of trade mark licence which has enabled a party which develops a successful business format to license not only the brand that underpins it but also the associated know-how, retaining a large degree of control at the same time. However, problems can emerge when the flow of funds to the licensing franchisor dries up. Via Lexology comes this link to an article by DLA Piper's Elana Sbarro and Will Woods ("California Appeals Court Rejects Outside Reverse Piercing of the Corporate Veil") which discusses Postal Instant Press, Inc. v Kaswa Corporation, 2008 Cal. App. LEXIS 753 (20 May 2008), a ruling in which the California Court of Appeals reversed a lower court’s decision to allow a judgment creditor franchisor, Postal Instant Press, Inc. to reach corporate assets that would satisfy claims of personal liability against the franchisee corporation’s former shareholder—that is, to 'reverse pierce' the corporate veil. The article, which is fairly detailed, will not be repeated here, but the authors' conclusion is worth reproducing:

"The most significant lesson in this matter: franchisors must adequately protect their interests by requiring collateral or a guaranty from a franchisee, whether that franchisee is an individual or business entity. As this case shows, piercing the corporate veil or reverse piercing of the corporate veil may not be a successful option for the franchisor to reach the party with the deep pockets".

Monday, 6 October 2008

"The burgeoning economic downturn continues to put pressure on all departments of companies to reduce costs. The intellectual property acquisition function is clearly no exception. So here's 5 suggestions, what would you add?

1 - review your portfolio to identify pending or registered IP rights of lower value now and in the future, prioritise them, and lapse them (saves on annuities and prosecution costs of any pending applications);

2 - consider filing divisionals or continuations to extend prosecution rather than expend money in the short term on attorneys (of course, the act of filing these applications carries a cost of its own);

4 - use lower cost filing methods, so for example: hire a patent attorney to carry more of the drafting, filing and prosecution costs internally, use PCT or Madrid for international applications, PCTFiler for National Phase entry, etc;

5 - consider blending your current attorneys with a lower cost firm for more routine work".

In global terms, I wonder whether the sort of savings which these suggestions are likely to achieve are likely to be relatively trivial in relation to the sort of business that is big enough to have the option of making them. Might greater savings, or greater income-generation, be made through cross-licensing of existing technologies, the adoption of more cost-effective marketing techniques such as co-branding, the responsible use of alternative dispute resolution rather than court-driven infringement ligitation; where IP rights are deemed superfluous, there is plenty of scope for developing online auction and licensing sites too. Finally, the delaying of applications in the pipeline looks like a recipe for chaos in the future if all the businesses within any given sector decide to press on with their previously-delayed applications at the same time.

If you have any thoughts on this topic, please let Duncan know directly and/or post your comments below.

Friday, 3 October 2008

I may be a bit late getting to the party, but I have just finished reading Chris Anderson's best seller of 2006, The Long Tail (late to the party, but still allowed in, since the 2008 version has one completely new chapter.) Anderson, editor in chief of Wired magazine, is a leading spokesperson for the view that the world of marketing, sale and distribution has been completely changed by the Internet. Anderson terms this tectonic shift (if a term of geological provenance can be used regarding the Internet) "the Long Tail".

In short, in a world where physical limitations on storage, display and performance are largely eliminated, the focus of business on generating a limited number of "hits" (i.e., "the Short Tail") gives way to the vast terrain inhabited by so-called commercial misses, such as the movie or album that does not quite make it in the bricks-and-mortar world, or the speciality retailer who cannot generate enough in-store custom to successfully purvey her fare of Far Eastern buttons.

In the Internet world, such products are not "misses, but "the endlessly long tail of niche products in the demand curve". Some will succeed, others will ultimately fail, but the sheer variety expanding options to the consuming public by virtue of the Long Tail will, in Anderson's words, fundamentally alter the nature of products, sales, and ultimately the fabric of culture itself.

The Long Tail, from top to bottom

From the IP perspective, what is notable in Anderson's book is the absence of any significant concern about IP rights. No wonder, perhaps: from the business vantage, IP protection can be seen as going hand-in-hand with the truncated world of hits at the head of the Short Tail. Once one leaves the head of the Short Tail, the vast number of misses that populate the endless path down the Long Tail carry with them the potential to clog the system because of rights clearance and the threat of IP hold-up. Where the aggregator is central (on the very last page of the book, Anderson identifies "the aggregator" as one of the three central participants in the Long Tail market), IP rights are largely hindrance and seldom an opportunity.Be that as it may, Anderson represents an important intellectual force whose well-crafted rhetoric contains a tacit but potentially powerful challenge to the current IP regime. Perhaps he can be encouraged to add a chapter in the next edition of the book on the role of IP along the road of the Long Tail.

Announcements of the death of copyright may be premature, if the figures cited in an article in today's Daily Telegraph are any indication. In "Harry Potter author JK Rowling earns £3m a week", the paper reports that Harry Potter's creator, Scottish author JK Rowling, earned £3 million (US$5.3 million) a week over the past year.

Right: the one that got away -- Warner failed to stop India's Hari Puttar being screened, though the decision is believed to be under appeal.

The vast bulk of this sum would have been generated by royalty income from the sale of books, DVDs and Potter memorabilia. While Rowling's earnings are not typical in the sector (her weekly income is six times greater than that of the next highest-paid author in the world), they do demonstrate two things: (i) even in the digital age, paper-based products can still generate prodigious income and (ii) the expectation on the part of many young consumers that works should be both free and available on demand does not mean that they are not prepared to pay for works which they desire.

The article cites figures from Forbes magazine this week that list the top ten authors and their annual earnings between 1 June 2007, and 1 June 2008. They are as follows:

The article does not disclose how much was earned by publishers, film production companies and manufacturers of merchandise from the rights licensed to them but it is fair to say that, assuming these authors are on percentages, someone out there is doing very well.

Thursday, 2 October 2008

The initial Anne Pratt case (Anne Pratt v First Rand Bank Limited [2004] 4 All SA 306 (T)) caused quite a stir amongst IP professionals in RSA dealing with the transfer and licensing of RSA IP assets with foreign based companies. The decision appeared to support an earlier decision in Couve (Couve and Another v Reddot International (Pty) Ltd and others 2004 (6) SA 425 (W)) that the transfer of assets (including IP assets - albeit that the subject matter of the Anne Pratt case was not IP) to a non-resident without the approval by the Exchange Control Department of the Reserve Bank was void. The Couve decision appeared to conflict with a 1981 decision (Barclays National Bank v Brownlee 1981 (3) SA 579 (D)) which concluded that a contravention would not result in a nullity. In the initial Anne Pratt case though the court held that exchange control had been granted. Anne appealed and, on 12 September, failed.

The decision goes into some depth on exchange control rulings and the practices relating to them in respect of the sale of securities. Of relevance to this blog appears to be the observation on "onus" which the court felt rests on the plaintiff ie to adduce and prove that exchange control approval was not obtained. Proving a negative is never easy and this may provide some comfort to those involved in IP transactions (perhaps even a simple trade mark assignment) where exchange control was not been obtained and who may fear the transaction void. Nonetheless, there now seems to be a SCA (Supreme Court of Appeal) decision in RSA which does not disapprove of the earlier Pratt cases (endorsing Couve) even though the SCA was not specifically asked, it appears, to adjudicate on the ramification of a failure to obtain exchange control approval.

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